South Korea’s SK Hynix announces buyback after stock crashes 50% in two months, wipes off massive retail wealth

SK Hynix, one of the most valuable companies in South Korea, on Wednesday announced that it would buy back and cancel treasury ‌shares worth 40 trillion won (around Rs 2.75 lakh crore) after the heavyweight stock crashed around 50% in less than two months, pushing the country’s stock market sharply down and wiping off significant portions of investors’ wealth.

South Korea’s massive seesaw market has grabbed the headlines this year, skyrocketing a whopping 122% since the beginning of the year to hit a lifetime high in June, before things began to go downhill. Analysts pointed out the concentration of chipmakers Samsung Electronics and SK Hynix, which make up just over half of the benchmark Kospi. The final nail in the coffin seemed to be the single-stock leveraged ETFs linked to these two chipmakers, which further increased concentration risks, leading to the Kospi spiralling down.

SK Hynix’s buyback announcement comes amid growing pressure from investors to return a bigger share of excess cash through dividends or ⁠share buybacks, after the chipmakers offered very little details on capital returns despite reporting record profits fuelled by booming demand for AI memory chips.


Also read | South Korea's Kospi swings from bear to bull market in just a month. Is AI trade regaining strength?

SK Hynix said its "intrinsic value, underpinned by its business ‌competitiveness, ⁠robust cash generation capability, and mid-to-long-term growth potential, is not fully reflected in its current stock price." It also said it would pursue an expansion of its total shareholder return target from the previous "within 50% ⁠of cumulative FCF" to "over 50% of cumulative FCF" through share repurchases, cancellations and dividends.

Buyback of shares refers to a corporate action where a company repurchases its own shares from existing shareholders. Usually, the company purchases the shares at a higher price than the current levels, encouraging investors to participate. Typically, a company decides to buy back its shares in order to increase share value, utilise surplus cash, prevent hostile takeovers or increase promoter holdings.

Kospi tumbles again

Meanwhile, South Korea’s Kospi, which has been rebounding from its earlier lows, closed nearly 6% lower on Wednesday to record its biggest one-day drop in three weeks on a ‌selloff in chipmakers ⁠triggered by ⁠high bond yields.

"It seems investors are quickly rushing out of stock market volatility, with bond yields being a trigger," Reuters quoted Huh Jae-hwan, an analyst at Eugene Investment Securities, as saying. "There is a wait-and-see mood after sharp ⁠losses and sharp ‌gains," Huh added.

Also read | Global Market: Samsung, SK Hynix lead KOSPI rout amid global risk-off mood

(With inputs from agencies)

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